2015 hrs 8th Nov 2016 brought the high tide ripples across Indian Business sector when Prime Minister in an unscheduled event announced the demonetization of Rs500 and Rs1000 notes in next 4 hrs time. The one hour address of the PM left the nation with an anxiogenic effect and sleepless nights for numerous unsung millionaires of the country sleeping over piles of currency mattresses.
Indian Housing sector itself contributes to 5-6% of country’s GDP and this sector owing to it’s behavior of huge cash dealings is bound to face major challenges in near future. The sector which has always been considered to be the prodigy of black money has suddenly closed it’s doors and refused to be tainted further. Steps like implementation of RERA has already boosted the confidence of middle class buyers looking for residential purchase more as a home rather than cash churning mixers as by the previous real estate mafias.
An easy way to understand the impact of demonetization on Real Estate is to do a SWOT analysis (Strengths, Weaknesses, Opportunities and Threats) which can bring out both the faces of coin to light.
• Will attract more middle class genuine buyers
• Will bring correction in property prices in near future
• Due to lack of buyers in market, ready projects or near ready projects can see some price reductions
• The step will eradicate the land mafias from the business thus curtailing sudden price inflations
• Immediate impact will witness a sluggish sale purchase in the sector for 12-18 months
• Institutional investors might not look at real estate as an attractive sector due to capital gain taxes
• Secondary market will be worst hit due to cash transactions
• Primary sales in tier II and tier III cities will take a stroll since large developers into cheque based transactions are majorly present in metro cities.
• With increase in Bank deposits buyers can expect a reduction in Interest rates
• To boost the Real Estate sector government may look at better incentives for home buyers in income tax slabs
• Government may look at fixing more realistic circle rates to bring uniformity in prices and increase in revenues
• In secondary sales now sellers will factor for capital gain tax and may see increase in prices of properties
• Lack of sales will lead to liquidity crunch in market and can thus slow down the existing projects
Demonetization might be demonstrating some initial challenges at the moment but in long run Real Estate will emerge as a more transparent and stable sector. Price corrections will also bring the dream of home for everyone closer. Benami properties and problems like land grab etc will definitely witness a crackdown and lower incentives. In a nutshell demonetization will certainly be a call for acche din for the middle class home buyers.
Author of this article is Maj. Vikrant Khare (Retd), Co Founder & CEO Rental Uncle (Rental Uncle is a broker free home renting platform http://www.rentaluncle.com/)
Disclaimer: These views are solely personal views of author and are only meant for knowledge sharing